Very often for water bills, you have to pay more per unit once your consumption goes
above a certain level. This might make it seem like the price goes up because your
quantity demanded goes up(which reverses the causality) and would mean an upward
sloping demand curve.
But if there is a fixed amount of water available per day (let's say due to a given
amount of rainfall), if you use more than average, you are making water scarcer
(reducing the supply) and when supply decreases, the price goes up. Thus, if you want
to increase your quantity demanded, you must pay a higher price. So it is quantity
demanded that seems to cause price, not the usual case where price causes your
quantity demanded.
It may be the case that we cannot increase water production (that is, move along the
supply curve) in response to an increase in demand.
Cyril Morong
San Antonio College
